EMC Buys SMARTS

Pays $260 million for ISV, management solutions

Storage vendor EMC said Tuesday it will buy privately held SMARTS in a $260 million deal that will add to EMC's software portfolio and its network-based management capabilities.

White Plains, N.Y.-based SMARTS' total revenue for 2004 is expected to be around $60 million, and the deal is not expected to close until the first quarter of 2005 pending regulatory approval, the companies said in a joint statement.

"This acquisition is about market expansion, innovative technology and growth. SMARTS represents a strategic acquisition for EMC in a complementary, growing market--network systems management," EMC CEO Joe Tucci said in a statement. "EMC is committed to dedicating the resources required to expand SMARTS' current market presence, while also applying their world-class modeling, correlation and root cause analysis technology to expand our lead in information and storage management."

The acquisition is only the latest in a string of software pickups for the storage vendor as EMC has worked to expand its management and virtualization offerings to supplement its hardware lineup. Earlier this year, EMC formed a separate software group that would act as an umbrella for its Legato, Documentum and Open Software groups.

"SMARTS has a unique and innovative technology being applied to the marketplace," said Howard Elias, EMC's executive vice president for corporate marketing, technology and new business, in a conference call with financial analysts. He said the company has 4,500 end-user customers, including solution providers. Elias also said most of SMARTS' revenue has come via direct sales, but he stopped short of filling in details of EMC's sales strategies for that product line.

Among SMARTS' 300 employees are 26 PhDs. The company's sales employees will be integrated into EMC's sales organization with a specific focus on network event management, the companies said. Also, Shmuel Kliger, SMARTS' chief technology officer, will assume a broad role at EMC.

Elias said SMARTS' technology will be integrated throughout EMC's offerings, including its hardware, and as separate offerings from the EMC Software Group.

"SMARTS is at a growth inflection point," said Shaula Alexander-Yemini, SMARTS' founder and CEO. "We are at about $60 million [in annual revenue]. We have a powerful set of products. In order to exploit the full potential of our technology, it's very important to join forces with a leader that can help us to build more solutions, build them faster [and] bring them to a larger audience in more geographies than we could ever cover as a smaller company."

Lodi Vercelli, CEO of Midrange Computing Solutions, a Downers Grove, Ill.-based EMC solution provider, said he's unsure if the SMARTS deal will help EMC as much as its previous acquisitions did.

"The acquisitions they have made along the way here--Documentum, even Legato--those things were pretty key and pretty strategic," Vercelli said.

In a report, analysts at investment firm Smith Barney said the SMARTS acquisition "complements EMC's current software offerings and improves its business mix."

Yet on the channel front, the challenge for EMC in the wake of the SMARTS acquisition won't be just to say it won't compete with partners but to actually follow through on that, said Richard Ptak, an industry analyst at Ptak, Noel and Associates, an Amherst, N.H.-based consultancy.

"If you listen to what they're saying, they are very adamant they are not trying to compete with solution providers. It is a company that is squarely in a commoditized market, looking around and saying, 'We're just going to do the higher-level stuff, and we're not really going to compete with our business partners--who are going to be trapped in a software commodity market,' " Ptak said.

"If you look around, [EMC] didn't get anything in this acquisition that all of the other players don't have in one shape or another," he added.

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